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Sprint abandoning bid for T-Mobile amid regulatory challenges

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Sprint is abandoning its pursuit of T-Mobile as the regulatory challenges of the deal are too steep.

Inability to jointly bid on spectrum was the last straw in concluding that the deal would not receive regulatory approval, a source told CNBC, after the Federal Communications Commission (FCC) said last week that it would propose rules that would prevent Sprint and T-Mobile from bidding together in a crucial coming spectrum auction.

"The Sprint-T-Mobile deal is purely a regulatory issue. The U.S. Justice Department told them that the winner will set a very high bar and the FCC told them last week that the two companies will not be allowed to bid on Spectrum together," Scott Nations, chief investment officer & president at NationsShares, told CNBC.

"[So] what next for T-Mobile? We know they've been on the block... [a] European acquirer will probably be the best outlet for T-Mobile. Part of the problem is that Sprint and T-Mobile bolster the lower-end of the phone market in the U.S. so if a foreign carrier can make that work for them, we'll see T-Mobile go," he said.

Sprint is expected to announce a new CEO in place of Dan Hesse on Wednesday. According to Re/code citing sources, founder of wireless distributor Brightstar and Sprint board member Marcelo Claure has been lined up to fill that position.

In early June, Japan's Softbank Corp., which controls Sprint, and Deutsche Telekom, which owns T-Mobile, agreed to a deal valued at $32 billion where Sprint would pay around $40 per share for T-Mobile.

Read MoreT-Mobile to reject $15 billion Iliad offer

Analysts have voiced concerns about the regulatory challenges facing the companies since the deal was announced as the U.S. FCC and the Department of Justice expressed a desire to have at least two more network operators competing against AT&T and Verizon.

In addition to an antitrust review, a deal between the companies would need to clear a public interest investigation by the FCC amid concerns that combining the U.S.'s third- and fourth-largest wireless carries would leave consumers with fewer service choices. Opposition from the FCC saw a $39 billion deal between AT&T and T-Mobile fall through three years ago.

T-Mobile will likely continue to consider alternative deals. Earlier Tuesday sources told Reuters that French telecom firm Iliad was in talks with investors to improve its $33 per share bid for 56.6 percent of T-Mobile as it expects Deutsche Telekom to reject the offer.

Additionally, Charlie Ergen, chairman of satellite television operator Dish Network Corp., has said he would be interested in T-Mobile if the deal with Sprint fell though.

Read MoreIliad offers $15B in cash for 56.6% of T-Mobile, at $33 per share

Sprint declined to comment when contacted by CNBC.

Shares of Sprint fell 16 percent to $6.11 in after hours trading while T-Mobile dropped 8.6 percent.

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